UPDATE: General Mills 3Q Misses Views; Guidance Raised
March 18 2009 - 10:41AM
Dow Jones News
General Mills Inc. (GIS) hiked its guidance for its fiscal year,
but that forecast and the cereal maker's fiscal third-quarter
profit missed Wall Street's expectations as its foodservice
business was hurt by weaker consumer spending.
The stock dropped 9% to $48.68 in early trading on the earnings
miss. The company's third quarter net income skidded 33% on
prior-year gains and falling volumes, while the stronger dollar cut
into overseas sales.
"The problem was in the volatile Bakeries and Foodservice
[business], which endured weak industry conditions and a tough
comparison," said Credit Suisse analyst Robert Moskow wrote in a
research note to clients. General Mills has been viewed as one of
the strongest performers in the food industry. Moskow said the
quality of results in the recent quarter was weaker than what he
had come to expect.
"We attribute this to a more austere consumer spending
environment," he said.
The packaged foods giant - whose brands include Cheerios cereal,
Yoplait yogurt and Progresso soup - now sees fiscal-year earnings,
excluding items, of $3.87 to $3.89 a share. The increase is the
third time the forecast has been raised, most recently in December
to $3.83 to $3.87.
In an interview with Dow Jones Newswires, Chief Executive Ken
Powell said that the company was able to raise its guidance for the
year because brands like Cheerios cereals and Pillsbury baking
products are doing well, and because the company expects pressures
from input costs to ease. The company expects gross margins to
expand in the fourth quarter.
"Our cereal business is very strong," said Powell.
The company has seen its cereals and brands like Hamburger
Helper do well as consumers eat more meals at home.
Meanwhile, General Mills reported net income of $288.9 million,
or 85 cents a share, for the period ended Feb. 22, down from $430.1
million, or $1.23 a share, a year earlier. Excluding gains from
hedging and insurance, earnings fell to 79 cents from 87 cents.
Net sales rose 3.9% to $3.54 billion, with the stronger dollar
reducing growth by 3 percentage points. Volume dropped 1%.
Analysts polled by Thomson Reuters were expecting earnings,
excluding items, of 88 cents a share on revenue of $3.54
billion.
Gross margin dropped to 36.1% from 39.8% on higher ingredients
costs and strong year-earlier grain-merchandising profit. Marketing
costs rose 6%.
Net sales in the U.S. retail segment, by far General Mills'
biggest business, rose 8.5% as profit edged up 0.7%. The baking,
Pillsbury and Big G cereal divisions led the gains. In the
international segment, revenue fell 5.4% and earnings dropped 6.3%
amid the stronger dollar. In constant currencies, international
sales rose 10%.
The bakeries and foodservice segment continued to remain a weak
spot, as sales dropped 6.2% and profit tumbled 61%. General Mills
has said it doesn't expect profit in that business to grow for the
fiscal year.
"Food away from home has been weak - as it has been for the last
year - as consumers move away from restaurants," said Powell. "We
didn't see anything we didn't expect."
The company said Wednesday that ingredient-cost inflation in the
fourth quarter should be "well below" the year's estimated rate of
9%.
That, plus an extra week in the quarter compared with a year
earlier, "will contribute to strong segment operating profit
growth" for the period.
-By Mike Barris, Dow Jones Newswires; 201-938-5658;
mike.barris@dowjones.com